Transcription
I am Jacob Clifford. I am Adrian Hill. And I am your host for Crash Course Economics. And I am your co-host for Crash Course Economics. Stan! Stan! You guys are a team. You're going to be co-hosting. Okay, that's great. Yeah, excellent! We are making Crash Course Economics at YouTube Space in beautiful Los Angeles, California, because Mr. Clifford and I are from Southern California. Yeah. Who are these two strangers? Where are the Green brothers? If they're not here, I'm unsubscribing. How can you unsubscribe? What is this? Some kind of moving newspaper? Did the Muppets interrupt us? It appears so. Hello. Listen, don't feel bad that you're not green. Okay? It's Kermit! This is insane! Listen, it's great to be green, but it's also great to be Adrian and Mr. Clifford. And actually, you know what? It's not easy being green. I think I can sing a song about it. Can I sing with you? This is like a dream come true. Of course, yeah. No, we can't afford the licensing agreement for that song. It's an economics issue. Sorry. In that case, why don't you introduce yourselves then? Okay, I'm Mr. Clifford, and I'm a high school economics teacher and a YouTuber, and I'll be focusing on teaching you economic theories and graphs. The theoretical stuff. And I'm Adrian Hill. And I'm a correspondent for the public radio program Marketplace, and I'll be focusing on illustrating the practical applications of economics. The fun stuff. Hey, we're both fun. We're definitely not going to teach economics like this: Welcome to Crash Course Economics, I'm so excited to teach you this amazing subject. Sorry, Professor Honiball, but that's why people hate economics in high school and college. Anyway, Statler and Waldorf were right. The most important question in economics is: "Where is John Green?" Everyone knows he won a bronze medal in economics at the Alabama State Academic Decathlon. John Green isn't hosting the show because of economics! We'll explain that later. Let's start with the basics. What is economics? It's probably easier to explain what economics is not. Economics is not the study of money or making a profit, although understanding economics will help you do that. Economics is not the study of the stock market, it's not. And it's not about guys in suits predicting what's going to happen in a particular market or in the overall economy. Some economists do that, but that's not the main focus of economics. Economics is the study of people and choices. The famous economist Alfred Marshall defined it as: "The study of man in the ordinary business of life. It examines how he gets his income and how he uses it. Thus, it is on the one hand a study of wealth and on the other, and more importantly, a part of the study of man." Let's talk for a moment about what economics is too. Economics is an 18-year-old girl deciding whether to start working or go to college, and how that affects her future income. Economics is a company deciding whether to make smartphones or tablets, and how that's affected by what we consumers want to buy. Economics is a government deciding whether or not to increase spending during a recession, and whether it's worth going into debt. So, contrary to what you might think, economics is not boring and tedious. Well, some of it is, but most of it isn't, I promise. It's fascinating. Understanding economics can forever change the way you think and solve problems. Our job over the next 40 weeks is to teach you concepts that will help you understand the world, and make it a better place. No matter who you are, you're going to use economics. In fact, you're using economics right now. You chose to watch this video, which means you think the benefits outweigh the costs. You might be thinking, "It's YouTube, there's no cost." But there is a cost, of course. You could be watching videos about cats or skateboarders falling on their faces or Charlie biting his brother's finger. The cost of watching this video is the video you're not watching, the value of your next best alternative. Economists call this opportunity cost. If you're still watching this video, it means you think it's the best use of your time, otherwise you wouldn't be watching it. But you might be asking, "What if I'm watching it at school? What if I'm forced to watch it?" You're not forced to go to school. You can skip class or drop out of school or go to a country where education isn't mandatory. But then the cost would outweigh the benefit. Even if you're at school, you're not forced to watch the video, you can close your eyes or put your head down. No one's going to pry your eyes open, that would be terrifying. And now let's talk about why John Green isn't here to teach this lesson. He's a businessman. He writes books, he runs DFTBA and Vlogbrothers and Mental-Floss, and he makes movies. But he can't do everything he wants to do. He's weighed the benefits and costs of his choices, and he's ultimately decided to spend more time writing books. So Mr. Clifford and I are here to teach you economics. And believe it or not, we've just explained the two most important assumptions in all of economics. First, the idea of scarcity, which is that people have unlimited wants and limited resources. And second, everything has a cost, and I mean everything. And if those two assumptions are true, we're going to need a way to analyze our choices and make the most of our limited resources. And that's economics. Hey, let's go back to the idea of benefits and costs. About 30,000 people die in car accidents every year in the United States. Is there a way to ensure that car accidents never happen? Yes, we could smash all the cars, close all the roads, and force everyone to walk. That would solve the problem of car accidents. Want to reduce the number of people convicted of murder? You could legalize murder. Want to end the unethical treatment of elephants? You could kill all the elephants, ethically of course. But before you decide to mercifully and compassionately kill herds of elephants, think about it for a second. All of these solutions are absurd because the cost clearly outweighs the benefit. Car accidents are tragic, but we don't prevent them at any cost. You know there are risks to driving, and you might get in an accident, but you still drive. Why? First, who wants to walk anywhere? And walking home in the rain carrying heavy groceries is way worse than the near-zero chance of dying in a car accident. The point is, individuals, companies, and countries can't have everything, so they must study the benefits and costs of their decisions and make choices. Let's look at another example: U.S. military spending is over $600 billion a year. That's close to the combined spending of the next ten countries on the list. There are about 20 aircraft carriers in the world right now, and the U.S. has half of them, and is building more. The opportunity cost of these aircraft carriers could be hospitals, schools, and roads. So, is the U.S. spending too much money on the military? Should it focus on making guns or butter? And I mean weapons or consumer goods. And notice the key word here is "or," because we can't make an unlimited number of both weapons and consumer goods since we don't have an unlimited number of workers, farms, factories, and raw materials. Scarcity means we have to choose. President Dwight D. Eisenhower explained this best in 1953 in a speech about the escalating Cold War arms race. "Every gun that is made, every warship launched, every rocket fired, signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children." And this is a good time to mention the role of politics in economics. We're not promoting anti-military liberal politics, but we are pointing out that military spending has an opportunity cost, which is resources that aren't being used for social services like feeding the hungry. We'll try not to promote any political agenda to you. We'll show you both sides and let you decide which is best. So please don't say, "Mr. Clifford loves capitalism, so he's a conservative pro-business," or "Adrian talks about environmental regulations, so she's a liberal anti-business." Yes, we're pro-business, and you are too. Where do you think your computers come from? That computer was brought to you by capitalism and the private sector. But still, security, laws, roads, and traffic tickets all come from the government. Conservatives and liberals argue about the details, but the free market can't solve all our problems alone. And the government can't solve them all either. Government officials use economic theories to guide public policy, and their effects are widespread, affecting billions of people. Sometimes the theory is flawed, but often the policy is flawed. Economists adjust policies based on theory supported by data and an understanding of incentives. Having the right incentive is crucial. But knowing the right incentives can be tricky. Look at public colleges and universities, for example. Many used to receive government funding for every student who enrolled. That is, universities had financial incentives to focus on enrolling as many students as possible, but not on helping them succeed once they started. So states began to change the incentives. Now, more states reward universities based on the number of students who complete courses or earn degrees. And this has worked in some places, helping universities increase graduation rates by shifting money from marketing budgets to programs that help students achieve better outcomes. But these incentives can also backfire if they're poorly designed. A university that gets paid for every graduate might push students to finish without giving them a good education. They might want to admit only students with high GPAs instead of considering other factors that might make them qualified candidates. They might push students to choose less rigorous majors. But incentives can help solve problems without adding new resources, we just have to choose the right ones. Many non-economists assume that the way to improve things like healthcare is to spend more money. But economists point out that America spends twice as much per person as other wealthy countries, and in many cases, they get worse health outcomes. Economists also say that instead of spending more money, we need to make sure that insurance companies, doctors, hospitals, and patients have incentives to provide the best quality, most efficient care possible at the lowest cost. The idea is that if we fail to choose the right incentives, the policy won't work. When Vietnam was under French colonial rule, the regime issued a bounty on rats to get rid of them. They paid people money for turning in rat tails, probably because piles of dead rats were too disgusting for them. The plan backfired. To make as much money as possible, rat catchers would cut off the rats' tails and then release them, which allowed them to reproduce. The policy increased the rat population and made things worse. We'll talk more about these perverse incentives in another video when we discuss the 2008 financial crisis. But for now, let's go to the imagination bubble. Speaking of 2008, people sometimes criticize economists and ask, "Why didn't they predict the 2008 financial crisis?" or "Why can't they agree on what the government should and shouldn't do during a recession?" These criticisms fail to distinguish between macroeconomics and microeconomics. All of these complaints are specifically about macroeconomics. Macroeconomics studies the economy as a whole. It looks at output, unemployment, inflation, interest rates, government spending, and growth for the entire country. Macroeconomics answers questions like: "Will unemployment rise if taxes increase?" "Will increasing the money supply boost output, or will it just increase inflation?" and "Will a recession in Europe cause the U.S. economy to slow down?" Macroeconomists appear on TV more often because they predict overall economic trends and work with the media, corporations, Congress, and the Federal Reserve. But less than 50 percent of all economists are macroeconomists. There's another side of economics that looks at different questions, like: "How many workers should we hire to maximize profits?" "If our main competitor releases its product in May, when is the best time for us to release ours?" and "What's the best way to combat climate change, fuel taxes or increased fuel efficiency?" These are all microeconomics questions. They're not about predicting GDP or measuring unemployment, but they are essential questions that economists must answer. If you don't know what GDP is, or what a high or low unemployment rate is, don't worry, we'll explain it later. So, macroeconomists and microeconomists are two different groups asking different questions under one academic umbrella. If economics were biology, macroeconomics would be ecology, while microeconomics would be cell biology. If economics were physics, macroeconomics would be cosmology and relativity, while microeconomics would be Newtonian mechanics. Thank you, imagination bubble. I've always wanted to say that, Stan. I can now cross that off my list. Now I just have to ring the opening bell at the New York Stock Exchange, arm wrestle Ben Bernanke, and swim in a giant pool of money like Scrooge McDuck. We're obviously skipping the details, but we promise to cover everything in the next 40 weeks from supply and demand to monetary policy. We'll explain it all, except for giant pools of money. We can't promise that learning economics will make you rich, but we can promise that learning economics will enlighten your minds and make you more informed decision-makers, and that makes all of us better off. Thank you so much for joining us, and we'll see you next week. Thank you for watching Crash Course Economics. This was made by all these nice people. They're making the show because there are financial and intangible benefits that outweigh their opportunity costs. If you want to help them with the financial benefits, consider going to Patreon. It's an optional subscription platform that allows you to pay any amount you want per month to help make Crash Course free for everyone, forever. Thanks for watching. And remember to be awesome.